Our latest forensic accounting red flag is from a small medical device company with unsustainable growth driven by a one-time gain.

We pulled this highlight from yesterday’s research of 48 10-K filings, from which our robo-analyst technology collected 6,034 data points. Our analyst team used this data to make 964 forensic accounting adjustments with a dollar value of $135 billion. The adjustments were applied as follows:

  • 390 income statement adjustments with a total value of $11 billion
  • 407 balance sheet adjustments with a total value of $55 billion
  • 167 valuation adjustments with a total value of $69 billion

Figure 1: Filing Season Diligence

OraSure Technologies
Sources: New Constructs, LLC and company filings.
OraSure Technologies

We believe this research is necessary to close the gap between the suitability and fiduciary standard of investment advice services.

Today’s Forensic Accounting Needle In A Haystack Is For Health Care Investors

Analyst Lindsay Bohannon found an unusual item yesterday in OraSure Technologies’ (OSUR) 10-K.

On page 62, OraSure Technologies disclosed $5.4 million in non-recurring revenue as the result of the early termination of a promotion agreement with AbbVie (ABBV). This hidden non-operating income helped OSUR report GAAP earnings of ~$20 million, a 140% gain from 2015. Removing this non-operating income, along with other adjustments, revealed that OSUR’s net operating profit after tax (NOPAT) grew by 80% to ~$14 million.

2016 was still a great year for OraSure Technologies, and it earned its best return on invested capital (ROIC) in over a decade. Our research in the footnotes shows, however, that its growth trajectory is not as impressive as GAAP numbers suggest.

This article originally published here on March 16, 2017.

Disclosure: David Trainer, Lindsay Bohannon, and Sam McBride receive no compensation to write about any specific stock, sector, style, or theme.

Article by Sam McBride, New Constructs